The secret Paulson-Goldman meeting

By Felix Salmon

October 20, 2009

Andrew Ross Sorkin's new book is out today, and breaks some pretty stunning news, dating from the end of June, 2008. At this point, we're still months away from the now-famous but then-secret waiver, issued in mid-September, which allowed Hank Paulson to talk to Goldman Sachs; he'd promised not to do that when he moved from Goldman to Treasury. "
data-share-img=""
data-share="twitter,facebook,linkedin,reddit,google"
data-share-count="true">

Tags:

Andrew Ross Sorkin’s new book is out today, and breaks some pretty stunning news, dating from the end of June, 2008. At this point, we’re still months away from the now-famous but then-secret waiver, issued in mid-September, which allowed Hank Paulson to talk to Goldman Sachs; he’d promised not to do that when he moved from Goldman to Treasury.

But it turns out that Paulson just happened to be in Moscow at the same time that Goldman’s board of directors was having dinner there with Mikhail Gorbachev. (You know, as one does.) Take it away, Andrew:

When Paulson learned that Goldman’s board would be in Moscow at the same time as him, he had [Treasury chief of staff] Jim Wilkinson organize a meeting with them. Nothing formal, purely social — for old times’ sake.

For fuck’s sake! Wilkinson thought. He and Treasury had had enough trouble trying to fend off all the Goldman Sachs conspiracy theories constantly being bandied about in Washington and on Wall Street. A private meeting with its board? InMoscow?

For the nearly two years that Paulson had been Treasury secretary he had not met privately with the board of any company, except for briefly dropping by a cocktail party that Larry Fink’s BlackRock was holding for its directors at the Emirates Palace Hotel in Abu Dhabi in June.

Anxious about the prospect of such a meeting, Wilkinson called to get approval from Treasury’s general counsel. Bob Hoyt, who wasn’t enamored of the “optics” of such a meeting, said that as long as it remained a “social event,” it wouldn’t run afoul of the ethics guidelines.

Still, Wilkinson had told [Goldman chief of staff John] Rogers, “Let’s keep this quiet,” as the two coordinated the details. They agreed that Goldman’s directors would join him in his hotel suite following their dinner with Gorbachev. Paulson would not record the “social event” on his official calendar…

“Come on in,” a buoyant Paulson said as he greeted everyone, shaking hands and giving bear hugs to some.

For the next hour, Paulson regaled his old friends with stories about his time in Treasury and his prognostications about the economy. They questioned him about the possibility of another bank blowing up, like Lehman, and he talked about the need for the government to have the power to wind down troubled firms, offering a preview of his upcoming speech.

How on earth did Paulson think this was OK? Goldman Sachs was a hugely powerful for-profit investment bank, and there he is, giving private chapter and verse on his opinions about the US and global economy, talking about internal Treasury matters, and previewing an upcoming (and surely market-moving) speech. All in secret, at a “social event” which somehow got kept off his official calendar. Oh, yes, and one other thing — the whole shebang took place in the Moscow Marriott Grand Hotel, in the context of Goldman directors joking about how all the Moscow hotels were surely bugged.

This is sleazy in the extreme, and will only serve to heighten suspicions that Paulson’s Treasury was rigging the game in favor of Goldman all along. (It’s also a bit peculiar, to say the least, that the only two times Paulson met with private-sector boards he was out of the country, and arguably outside US jurisdiction.)

Paulson didn’t have this meeting out of fear or necessity: in fact, he told the directors that although there might be tough times ahead, “I think we may come out of this by year’s end.” (Blankfein was skeptical.) There was nothing in the way of extenuating circumstances which could possibly justify the secret rendezvous. This is definitely a situation where Wilkinson should have pushed back and said no way — but it’s hard to say no to Hank Paulson. Whose reputation has now taken yet another serious lurch downwards.